1. Field of the Invention
The present invention relates generally to a system and method for evaluating and managing participatory investments in real estate transactions; and, more particularly, to an automated system and method for evaluating real estate Candidate Transactions for participatory funding by Investment Criteria based Managed Investment Funds and then managing the funded Candidate Transactions from purchase and/or construction to completion and/or sale.
2. Description of Related Art
Real estate has long been an investment vehicle for various entrepreneurs, managed funds, and the like. Because of the rather large sums involved, one drawback has been the requirement to borrow or otherwise procure third party investment funds to consummate the transaction. Conventional real estate transactions have traditionally involved a mortgage company that lends funds to a purchaser who can be the occupant of the property or an investor or lessor in commercial transactions. Conventional lending practices are highly regulated, and in the case of residential properties have taken on a transactional form which requires a high degree of rigidity, paper work, and governmental compliance when funding conventional real estate transactions.
Another type of real estate investment, however, involves true equity participation with the purchaser/builder/developer for the purpose of purchasing and reselling, or leasing the repositioned residential, industrial, or commercial property. These purchase and/or construction and re-sale and/or lease investments almost always require third party financing and take on a number of different forms.
In one highly touted investment scheme dilapidated or “slum” properties are purchased by a legal entity, such as a corporation or a limited liability company, an investor, or an investment group or association; and, upgraded (or in some cases raised) and/or re-constructed to be subsequently re-sold at an elevated sales price. This type of investment upgrades and repositions the property to give the investor/purchaser a value added re-sale. In accordance with some of these transactions, various favorable tax treatments are afforded the investor to enhance the return on the investment.
In another scheme, a portion of the purchase price of an existing edifice is donated to a not-for-profit organization, which not-for-profit organization then funds the upgrade or rehab, and the investor then re-sells the upgraded property while receiving a tax deduction for the donation. Various other schemes take advantage of favorable tax treatment, for example, historical buildings, and the like. Low income housing refurbishment and construction can also involve local state or federal government subsidy or participation.
There is, however, another investment scheme colloquially referred to as “flipping” real estate. In accordance with this transaction, Real Estate Investors, who are self-funded or able to borrow money to purchase Investment Properties, reposition these properties in the market by, for example, refurbishing or upgrading the property and re-selling the property for a profit. These transactions have become more popular with a segment of the real estate community familiar with a particular market, demographics, and the like. The major drawback to a Real Estate Investor in this practice is availability of conventional funds, and the drawback to a participatory capital provider is the substantial amount of effort required in purchasing, upgrading, and tracking all the transactional requirements through re-sale.
Because of the economy of scale associated with investing in small to medium sized residential or commercial real estate transactions in a local or regional real estate market, is so locally regulated and peculiar to a specific area or locale, it is heretofore been virtually impossible to efficiently invest institutionally or large scale managed funds in these real estate investments in any magnitude. This market has, therefore, been relegated to smaller local Real Estate Investors and third party money investment funds familiar with a specific real estate market who may work on a smaller economy of scale.
Real Estate Investors seeking financing for their investments can utilize mortgage brokers to connect them with a funding source. Mortgage Brokers, are primarily in the business of finding third party funds to support more traditional real estate transactions including “flipping,” commercial development, or re-sales. These Mortgage Brokers are well familiar with the real estate market in a particular locale and deal with a cadre of Real Estate Investors active in the local market who participate, not only in the value-added real estate market, but in the Greenfield residential, industrial and commercial projects of builders and developers.
Even though, Mortgage Brokers are able to deal effectively with a cadre of Real Estate Investors, the traunch of funds available for these types of investments is still limited. There are two reasons for this lack of funding sources. The first involves the risk associated with the nuances of complicated real estate transactions, and especially those which require upgrading or rehabilitation using Contractors. The second is risk associated with lack of familiarity with the market space and inability to evaluate and rank favorable investments, especially against private Managed Investment Fund Investor Criteria.
Because of the favorable nature of investing in real estate, including the security of the transaction, i.e. liens; and, very favorable return on investment, many funds and institutional investor funds have been attracted to this market. One scheme, which avoids the regulation of the traditional mortgage company, is a “participation” investment. Like a venture between a Real Estate Investor and the money source, in this scheme the money provider actually becomes a participant with the Real Estate Investor in the transaction and shares in the profits from the deal upon completion, either by sale or in some cases real estate leases. This is somewhat akin to a venture capital arrangement, and differs from traditional mortgage lending in that the money can be provided interest free and the return on the investment is not predicated on a interest over a lending term, but rather on an agreed upon shared profits generated from the transaction. This profit can be from sale or deriving income thru the lease of the property. Thus, the Real Estate Investor, who is local, brings an investment opportunity to the fund, and the fund or third party money investment source evaluates the transaction and makes a secured investment in the real property transaction.
The drawback to this scheme is twofold. First, most investment funds do not have an automated way of evaluating the strengths and weaknesses of a real estate based deal in a particular business sector or geographic locale against another sector or geographic local. Second, and more importantly, shepherding and tracking this type of real estate based transaction or “deal” through the various phases and safeguards has heretofore been very expensive and labor intensive, not to mention very locally specific, especially when dealing with hundreds or thousands of transactions across many sectors and geographic locales.
Thus, it would be advantageous to have a System and method for providing funds to third parties, secured by the Investment Property, who wish to invest in “participation” funding for real estate based deals, on a nation-wide basis, which is efficient, effective, and inexpensive, yet provides a mechanism for consolidating a market along with evaluating and ranking literally thousands of available real estate based deals; and, then, when a chosen deal is funded, shepherding the transaction, including the safeguards for the transaction through a seamless automated System to an exit strategy.